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O.K., Mark Willes Cut Costs. Now Can He Sell Newspapers?

July 27, 1997

The Corporation: TURNAROUNDS

O.K., MARK WILLES CUT COSTS. NOW CAN HE SELL NEWSPAPERS?

Having put Times Mirror into fighting trim, Willes aims to jazz up marketing

Mark H. Willes smiles faintly at the memory of his first months at Times Mirror Co., when his cost-slashing won the onetime General Mills Inc. vice-chairman the epithets "cereal killer" and "Captain Crunch." "It didn't bother me," Times Mirror's chairman and CEO says coolly.

It's easy to be blase when you're on a roll. Since mid-1995, when Willes became the first outside exec brought in to run the family-controlled company, he has moved fast. He shocked observers with an opening gambit that shuttered such papers as New York Newsday and Baltimore's Evening Sun and slashed nearly 3,000 jobs, or 10% of the workforce. The cuts raised operating margins from 8% in 1994 to 12% last year, and the stock price has zoomed to about 58 5/16 from 23 1/4 when Willes arrived. "You have to love the job he has done," says Mark Greenberg, Leisure Strategic Fund manager at Invesco Funds Group, which owns about 90,000 shares. "He's made the right moves by getting rid of things that weren't working, and he's got people working for him thinking they can grow their business."

UP FROM BLEACH. Already, the moves have buffed earnings. Greenberg thinks 1997 net income will hit $267 million, up 30% from the $206 million earned on sales of $3.4 billion in 1996. Now, Willes, 55, must find growth at a company where two-thirds of sales and 76% of earnings come from the slow-growth newspaper business. But to Willes--who spent 15 years at a place where promoting Cheerios was an art--it's Marketing 101. To lure readers to such papers as the Los Angeles Times, Newsday, and the Baltimore Sun, he is jazzing up their look, using promotions, and speeding distribution. "If you can increase the sales of something as bland as bleach," he says, "you ought to be able to do it for something as wonderful as a newspaper."

Getting readers to pick up a newspaper when they're inundated with TV, radio, and the Internet is harder than slapping Michael Jordan on a Wheaties box, however. Investment bankers at Veronis, Suhler & Associates Inc. think the industry's total 1997 circulation will reach just 59.4 million, down 5% from 1989. "Gaining circulation is a zero-sum game," says Salomon Brothers Inc. analyst Lanny Baker. But Willes sees a silver lining. With a consolidation under way and a healthy national economy boosting ad sales across the board, he plans to scoop up papers that dominate their markets. "Newspapers aren't dead," he asserts.

So far, however, Willes' wiles have shown mixed results. In the six months ended in April, daily circulation at Times Mirror's seven papers rose 2.4% overall, to 2.3 million, with the Times up nearly 5% from the 1996 period. Yet daily circulation is up by only 0.7% at Newsday, its second-largest paper, and the more profitable Sunday circulation is down at five of seven papers, including the Times. Market saturation is partly to blame, says Willes.

His best chance to grow is in Los Angeles, where the Los Angeles Times battles more than 20 smaller papers in such nearby cities as Pasadena. With 1.1 million daily readers, the Times holds just 30% of the market and contributes more than one-third of Times Mirror's revenues and two-thirds of operating earnings. To win new readers, Willes has imported some cereal tactics--including price cuts, heresy to many in the newspaper world. "It was the kind of guerrilla warfare we never had to use before," says Richard T. Schlosberg III, the longtime head of Times Mirror's newspaper group. In mid-1996, Willes halved the Times' single-issue price, to 25 cents. He also launched a $7 million advertising campaign--the paper's first since 1989--began retailer promotions, and put the Times logo on sports venues such as the Los Angeles Forum. Says Theodore Lutz, vice-president at The Washington Post for business development and circulation: "It's nice to see someone who believes in marketing again for this industry, and it's nice to see someone who's showing numbers after doing it."

Certainly, L.A.'s resurgent economy hasn't hurt. With the entertainment sector briskly adding jobs, the Times has increased advertising by expanding its business pages with tech and small-business sections. Orange County is the only major local market that the Times has not cracked. Despite promotions at baseball games and food-fair giveaways, circulation is flat, and the paper is outsold 2 to 1 by the Orange County Register, which sells itself as the local alternative to the nationally minded Times.

Room to grow is just as limited in the next two largest markets, Long Island, N.Y., and Baltimore. There, Newsday and The Sun already reach more than half the homes. Newsday was forced to retreat to its Long Island base in 1995 after losing $100 million in a five-year fight to wean New York City readers away from the likes of The New York Times and the Daily News. "I think New York Newsday was a large distraction," says Daily News CEO Fred Drasner. "They're better off focusing on their core audience."

DIFFERENT STROKES. Each region requires its own tactics. On Long Island, where Newsday has been plagued by late deliveries, 75 minutes have been shaved off the distribution process so sports deadlines could be moved back. A deal with Burger King Corp. offering food prizes for new Sunday subscribers has boosted circulation by 2,500 since mid-1996. Newsday also is targeting younger readers with nightlife and high-tech sections. In Baltimore, Willes replaced the unionized advertising sales force with a commission-based staff.

Willes' overhaul has also gotten a hand from low newsprint prices, which made up 13% of 1996's costs. In the first quarter of 1997, the newsprint price was about $550 per metric ton, down 30% from the previous year. But prices are firming, and the company projected in a May analysts meeting that they could hit $650 by 1998. To slash costs, the company has jammed classifieds and comics into fewer pages. Willes is testing a price-hedging program, but the hikes may still hurt margins.

Willes has also moved to consolidate Times Mirror's publishing arm, which made up 29% of 1996 sales but just 18% of operating earnings. On Apr. 16, he merged its Matthew Bender & Co. legal books with Mosby-Year Book Inc., a health publisher. A key thrust will be electronic health and legal information for professionals. Willes also hopes to create an information powerhouse: After acquiring The McGraw-Hill Companies' Shepard's legal citation unit, he put it into a joint venture with Reed Elsevier's PLC's Lexis-Nexis unit.

Willes is experimenting with the Internet as well, investing in such services as ListingLink for real estate and the Hollywood Online Inc. entertainment service. While profits have been elusive, Willes thinks that Net services that act like classified advertising complement his newspapers. "I'm not sure we can make money there," he says, "but I want to be there just in case."

What next for Willes? With little left to chop, he has been shopping for more papers, although he lost a recent bid for a group of newspapers owned by the Walt Disney Co. to Knight-Ridder Inc. Still, Willes remains sanguine on the possibilities for his industry. "There is still nothing that can beat getting up in the morning with your newspaper and a cup of coffee," says Willes. "And we think if you make it appealing, more and more people will do just that." With that, even the "cereal killer" smiles.By Ronald Grover in Los AngelesReturn to top